Factoring in the furniture

The turnaround in the office property market in China's large coastal cities is persuading many companies to .move office. Just a couple of' years ago most new space was sold or leased out once a building was completed. Short leases, which used to enable landlords to increase rents frequently, are now working against them, boosting the bargaining power of tenants as rental prices plunge.

In many cases, new premises can be found which are both cheaper and better than a company's existing office space. In a buyers' market companies are trading up, says Mr Robert Ma, director of the interior design and construction company M Moser and Associates' in Shanghai. .

More paperwork

However, the full cost of moving and fur1 bishing is not always factored in by a connpany in search of lower rents. "Foreign investors often assume that China's very cheap and. sometimes they make the mistake of not putting everything into the budget," says Mr Stephen White. managing director of Interior Action in Shanghai, a company offering interior design and construction management services.

Moving to a new location can be an arduous task for a chief representative or project manager — fixing budgets, finding the right property, liasing with suppliers and trying to appease those members of staff who find it more difficult to travel to work.

The larger companies have more resources to help them cope ?Bay Net-works in Shanghai had a dedicated project manager to oversee all aspects of its move. while BP assigned an employee from Singapore to manage its relocation. Among smaller firms, the temptation is to minimise the design element and simply buy in the furniture — from individual desks to larger items such as conference tables, reception counters and public seating. But even in low budget cases, it is common to employ a local project co-ordinator to oversee the whole exercise. According to Ma, local knowledge is important when it comes to submitting documents to municipal authorities. "Laws are becoming stricter, involving more paper-work," he says. "Enforcement has been increased in the fairly recent past."

For example, landlords are required time to review the design and police and fire departments brought in to give their stamp of approval for example, sprinklers need to be tested, materials assigned a fire rating and changes to the electricals approved.

Co-ordination is central to a major project because of the number of people involved, including builders, designers, architects, electricians and telecoms engineers. It is essential for the equipment to be delivered at the appointed time. "Logistics, distribution and transport are big issues," says Mr Harvey Coe, general manager of the office furniture division of Lamex. "Clients now give you little time, so we have to becautious in terms of delivery. We have to make sure we deliver on time." He adds that flexibility is another requirement since clients have a tendency to change their minds at the last minute

Despite all the hassles, the case for a move can he compelling. Certain landlords are unrealistic about reducing rents. says White, and they are losing out because there is now a wide selection of quality and afford-able new buildings from which to choose.

Other reasons to relocate include the need for expansion or simply to change address — perhaps to move closer to a major client or, in the case of foreign banks allowed to conduct local currency business in Shanghai, moving to Pudong because of the government's decision to promote that area as the country's financial centre. Pudong is becoming more attractive. says White, because of the growing number of retail and leisure outlets and the building quality and value has unproved.

Investing in comfort

The process of office design and furniture sourcing begins once a site has been selected. Corporate image and staff comfort are the major reasons for investing in a quality environment. Whatever the motive, there seems little point in moving to an upmarket location unless the company invests in the interior. "There is no harmony between cheap furniture and an expensive building," says Mr Christian Scherff, managing director of the furniture supply company Team Work China.

Banks, stockbrokers, accountancy and law practices. high-technology firms and the multinationals invest heavily in office design and furniture. Among the biggest spenders are companies shifting their regional head-quarters to the mainland from places like Hong Kong and Singapore. Specific needs differ ?for example, law firms want formal and prestigious offices, whereas high technology firms have specific technical requirements, such as a large and reliable electricity supply or 24-hour air conditioning for computer equipment.

Some Chinese companies are also investing in the office environment. Local design companies are springing up to set-vice this market and some are quite good, according to Scherff. However while they charge competitive rates, they don't offer the same value-added services, according to Ma. "We don't see them as competition," he adds.

International designers are cautious about taking on local business. For example, while several Chinese securities companies have approached M Moser in Shanghai, Ma says they seem to have a different set of values. "The process of doing business is quite different — they don't. yet understand the value of our services," says Ma. "Selling furniture is a different business."

Ms May Tsui-Cohen of Universal Ideas in Beijing, says she is reluctant to offer her design. services to local companies because of worries about not getting paid. She is also frustrated more generally .by the amount of work spent on pitching for business which does not result in.a commission. "Lots of companies are just shopping around," she says.

Design companies like to work with clients throughout the duration of a move. In many cases they offer a free pre-lease advisory service, giving independent advice on matters such as evaluating the true floor area of an office, the efficiency of an area (taking pillars into account, for example) and quantifying electricity supply and capacity.

Signs of a cutback

Once the site has been chosen, the design process can start, increasingly within a fixed budget because of the economic downturn. The Asian crisis is having an impact on spending levels and competition among sup-pliers is intensifying. "Increasingly, because of the economic climate, [multinationals are more cautious and all furniture suppliers are competing on prices, product quality and service." says Coe.

White .agrees: "There is evidence of a cutback. Banks are cutting their furniture budget and one client decided recently to pull out of China entirely." However, most in the industry say there is still enough work to go around. Tsui-Cohen believes the quality of the building and its environment still take precedence over budgetary matters. "While prices have gone down, if the chief rep doesn't know how to bargain, the costs will be higher." she observes.

In terms of furniture sales, there is a growing demand for quality items from domestic companies. Lamex, the best-known office furniture supplier in the region, derives half of its mainland income from them. "In 1992 Lamex was perceived as being very expensive.," says.Coe. "We had to explain to [them] why it was desirable to spend so much money on office furniture. Many Chinese companies now realise that image, comfort and durability are important".

Its target sectors include telecoms firms, state-owned businesses and the public sec-tor. Clients include Shanghai Television Station, Shanghai ImportlExport Company and Shanghai Pudong Development Bank but one of the biggest is a provincial state enterprise, Yuxi Cigarette Factory, which has bought US$800,000-worth of office furniture from Lamex.

Scherff of Team Work China believes Chinese businessmen will come to view office furniture as a status symbol, in the same way they currently regard mobile phones or Mercedes cars. "Companies need a profile and they need to look after staff," he argues. He cites the new Bank of China headquarters building in Beijing as a prestigious project on which considerable sums are being invested.

Competition in furniture

Quality office furniture still tends to be imported. Taxes have fallen considerably. but they are still significant– in Beijing. the city tax is 17 per cent and import tax 22 per cent. Hong Kong firm Lamex dominates the middle-to-high end of the market. Since setting up in the mainland in 1992, it has grown to employ 2,000 to 3.000 employees in the country. It maintains a high profile by heavy advertising and sponsorship campaigns. For example, it is the sponsor of Dalian Wanda, China's championship-winning football team, at an annual cost of US$700,000.

An influx of furniture suppliers from Hong Kong and other parts of Asia has heightened competition in the mid-range market. As for Chinese suppliers, few offer service and maintenance guarantees like their foreign counterparts and Scherff says the quality of wood and technological application are low. For example, timber from tropical Guangzhou is liable to crack in a dry climate such as in Beijing. Imported wood from Europe and the US is treated to withstand different temperatures and levels of humidity.

Lamex, which has a new manufacturing base in Dongguan, Guangdong province, says it occasionally sources primary materials locally, but most wood and chair fabrics are imported because of concerns over quality.

Most foreign manufacturers appoint distributors. Team Work, for example, is the sole distributor for 12 European producers specialising in light woods. However, top-ofthe-range furniture suppliers, such as Steel Case and Haworth of the US, are looking to invest directly in China, says Scherff. But investment plans could be deferred until signs of a pick up in the national economy.